If you’d like to insure your mortgage and protect your family from losing their home to credit collectors when you pass on; this is the product for you. But as with any kind of insurance; mortgage insurance also come in different types. At present, there are two: the Mortgage Reducing Term Assurance (MRTA) and the other one is the Mortgage Level Term Assurance (MLTA).
MRTA vs MLTA
To start you off; we made a super simple chart to show you the differences between the two insurance types. Though the purpose is the same; you’ll notice they are creatures quite different.
| MRTA | MLTA | |
| Purpose | Protection | Protection, Savings and/or cash value |
| Coverage | Covers the outstanding housing loan on a decreasing sum assured basis | Covers the outstanding housing loan on a fixed level sum assured basis |
| Payment | Lump sum payment by cash or financed into housing loan | Paid periodically on a monthly, quarterly, semi-annually or annual basis |
| Total Premium | Lower | Higher |
| Nomination | Bank is the beneficiary | Anyone can be the beneficiary |
| Transferability | No | Yes |
| Suitable for* | Where buyer aims to own the house in a longer term | Where buyer is expected to sell the house in short-term |
Do I even need mortgage insurance?
When we have passed on (or disabled); loved ones can either continue paying the loan or sell the house to repay if necessary.
Do I have to decide when I buy my house?
The simple answer is no. Insurance agents and banks will always be happy to sell you a policy later in your mortgage if you didn’t buy one on the outset.
If paying for MRTA which requires lump sum payment – can you afford this? Many who take MRTA upon application of their home loan will add the additional premium lump sum into their loan amount to help pay for it. Since you can’t do that later on – you must have the full amount on-hand.
Which one is better?
There are two salient differences to note between the MRTA and the MLTA.
The first being that the MRTA will pay out based on the amount still owed to the bank and the MLTA will pay the exact amount agreed in the policy no matter how much you owe (this is usually more than the amount owed and based on the value or purchase price of the property).
The second difference is that the MRTA requires only a single lump sum premium payment whilst the MLTA will be recurring yearly.
There are two ways of looking at this selection: MLTA is great because not only will you receive the amount you need to repay the bank but a little extra which works as a cash value. But because MLTA premiums are repetitive; you’ll definitely be paying more in the long run than you would for an MRTA.
Think about your loan tenure: is the extra you will pay for an MLTA justified in the event of a pay out? MRTA on the other hand is great if all you want to do is to secure your mortgage. It’s the bare minimum in mortgage insurance and it’ll definitely do the job but it’ll give you little else. Still, it’s a single premium payment and is easier if you don’t expect to have a good enough cash flow to keep paying premiums every year.
Also remember that MRTA is non-transferable – meaning it is tied to this house during this financing period. Should you choose to sell; you cannot take your policy with you to the next property you purchase. The opposite is true for the MLTA which is a policy that follows you (if you so want it to!).
When it comes down to it, which is better will depend on you. If you want a bare minimum policy just to secure your house this time around – the MRTA is the choice for you but if you want something a little extra; the MLTA will be a better option.
No comments:
Post a Comment